Stephen Townley is a sports and entertainment lawyer who has a wealth of experience. He shares his insights with us in this article.
What are some of the new litigation risks that you see facing sports and entertainment brands?
Short:
- Environmental, Social and Governance Risks (ESG);
- As a result, there will be increasing challenges in the ownership and exploitation intangible assets due to the advancement of technology. This includes generative AI.
- After maturity, the ‘prune-juice effect’ will likely result in changes to the ownership model for intangible assets.
Let me first make a few provisos.
- Bias is often present in personal perspectives. I am biased in that I view litigation in the entertainment and sports sector as an example of parties failing to find a better way to resolve their dispute. Litigation is a powerful tool that can destroy a career, especially in the sport industry. As an international neutral for JAMS, I’m increasingly interested in how new technology can help with conflict management and resolution.
- There are times when litigation is the only way to resolve a dispute. Lance Armstrong, an athlete charged with doping offenses, has no other option than to go through the due process in order to determine the validity of his charges. In the last decade, I have dealt with high-profile litigation in football and cricket where criminal accusations have been used to create bias in civil proceedings.
- General counsels in organisations play a valuable role by mobilising internal and external management resources and identifying litigation risks as early as possible and “heading them off at the source”. The technology can help in this task.
Please explain your selection of the following contemporary risks.
Risk 1 : Environmental, Social and Governance Risks (ESG)
According to the Corporate Finance Institute ESG helps stakeholders better understand how an organization manages risks and opportunities relating to environmental, social, and governance. This description includes a variety of topics related to sport and entertainment.
Abraham Lincoln’s quote about reputation is my favourite of all time. He said: “Character like a branch, and reputation like a shadow.” The shadow is your perception of the thing; the tree is real.
Sport and entertainment brands are more vulnerable to litigation, especially when it comes to reputational issues. They generate curiosity, debate and public opinions. Brand value is based on reputation. Sport and entertainment personalities can become influential when they achieve success. The brand that a sportsman or entertainment personality wears, uses, or endorses in competitions or performances, or even outside of them, can influence others’ behaviour. This includes buying decisions. Influencers at the highest level can monetise their role.
Abraham Lincoln said that a reputation is like a shadow. The size of the shade can change from sunrise to sunset, and sometimes disappears when the sun hides behind a cloud.
“Character, like a tree and reputation, like a shade.” The tree is real, the shadow is how you perceive it.
In a recent incident, a kiss of the lips or a blink of the eye can have repercussions on brand values. This kiss was so powerful that it overshadowed Spain’s Women World Cup team’s victory against England in Australia’s final in August 2023. It is likely that the incident damaged some reputations but may have helped others who reacted quickly. It is claimed that the President of the Spanish Football Federation Luis Rubiales kissed Jenni Hermoso, one of Spain’s top players, on the lips during the award ceremony.
The ‘Me Too Movement’ has changed the public’s perception of gender issues. The phrase’s origin can be traced back to Myspace, in 2006. Harvey Weinstein’s arrest in New York in 2018 on charges of rape made the phrase global news. It is difficult to compare the allegations against Rubiales with Mr Weinstein. The public’s attitude to what constitutes acceptable behavior for a senior football official has cast a shadow. Russell Brand has been the subject of serious allegations in recent days. YouTube responded by removing the feed and, with it, the monetisation system, which Mr Brand relied on. He is said to have six million followers.
The evolution of technology, including AI generative, will likely increase the challenges of ownership and exploitation intangible assets.
The exclusivity model has been a major factor in the monetization of sports and entertainment brands. Both streaming a music album and performing a song are examples of creating an intangible.
In some cases, these intangible assets are recognised as intellectual properties (IP). They can also be a combination between IP and contracts. This is sometimes referred to as contract IP. IP is found in many forms, including names, images and likenesses, as well as designs, works, performances etc. In the sports industry, an agreement for sponsorship or endorsement could be used to gain access. Blockchain technology allows for innovative ways to monetise assets that are intangible through an instrument called a smart contract or NFT. Securitisation, which was invented by David Bowie, has been popular in the music industry.
In order to determine the application of property rights, the lawyer first identifies them at the origination point and then examines their application at the output point. Copyright, trademarks and patents are all included. So is personality rights, unfair competitors, goodwill, unfair competition, etc. The asset’s proprietary basis is just one part of the equation. Copyright may be owned by a paintert. The painting would be worth a lot more if Hockney had been the artist. The value of the reputational shade is reflected in the brand values. The shadow’s extent will be determined by a series interactions, such as those with media, fans, supporters, volunteers, influencers and participants.
The exclusivity model has been a major factor in the monetization of sports and entertainment brands.
It was easy to establish provenance and determine the origination of copyrights when one recalled original ownership. In 1953, the Supreme Court of the United States ruled that Walt Disney had violated an agreement in 1937 when he made an unauthorised copy of copyrighted pictures. Ed Sheeran, a global artist, was cleared in 2023 of a claim he violated the copyright to Marvin Gay’s ‘Let’s Get It On.’
AI can be used to confuse and conceal the origin and provenance concepts of recognized proprietorship. In addition, there are huge difficulties in enforcing laws due to jurisdiction shopping and the non-alignment between national laws. In most civil law systems and in some common law ones, artists’ copyrights require human input. AI technology has revolutionized the way content is generated. It can be scraped off the internet and social media and may include copyrighted work. The data is then stored in a “data-lake” and the AI decides how to use it without any human input.
In a recent article in the Law Society Gazette about Lord Justice Birss, he acknowledged using ChatGPT to write a paragraph in a judgment. He made it clear that he already had his decision, and was only using the large language-based program to help him put his judgment into words.
Can copyright exist at the point of input and output of AI generated content? Possibly. Most likely when the input is made! Who will own the data if it exists? Do defences like fair use or exceptions for data mining apply? AI has created a short movie and a rock group. Harrison Ford was reportedly shown as a teenager in the latest Indiana Jones movie. Sir Paul McCartney said that it could lead to a new Beatles’ album. The future is going to be interesting.
Live performances are the most important part of sport events. It is not the monetisation method used by the creative or entertainment industries. Hollywood’s dispute with the Writers Guild of America is one of the current manifestations of the challenges presented by AI. There is a copyright registration system in the US, which means that many early cases arise there.
The risk of the ‘prune-juice effect’ after maturity of business structures, and future likely changes to the ownership model for intangible assets
The ‘prune-juice effect’ is a phenomenon that occurs when money flows increase. The phenomenon was first noticed in the context of US pro league players. In time, the athlete would receive a larger proportion of the wealth created by monetising sports performances and rights. At the maturity of the cycle, 67% of the income should go to the athlete.
Live performances are what give sport events their value.
The so-called “prune juice” phenomenon is an example where athletes are seeking to increase their share of the value generated. It puts pressure on sports event organizers to increase efficiency in order to maintain margins after the cake is sliced. In the entertainment industry, similar initiatives have been introduced as the performers’ brands are now more valuable than record labels.
The issue has now moved on, as the technology used to distribute and connect content has given sports and entertainment personalities new opportunities to create communities and to monetize them directly.
These changes, I believe, are a challenge to the traditional commercial models of sport. This is especially true with the rise of social media and the personal brands of individuals. Sport sanctioning models provide an opportunity to create rules and regulations. By selecting hosts and negotiating terms of participation, you can assert ownership rights.
Do you believe that the litigation risk is the same for sports and entertainment brands?
They are not the exact same. Sport as a brand has a unique challenge: to ensure the integrity of competitions, and thereby guarantee a fair and unpredictable outcome. This is why match-fixing and drugs have been so prominent in sports litigation. Entertainment industry is not dependent on uncertainty and faces different challenges. The Rolling Stones were branded as ‘bad guys’ in the beginning, while the Beatles were labelled as ‘nice boys’. This did not hinder their career.
Please describe any other issues or changes that may have influenced your interest in technology and strategies to reduce litigation risk.
It is impossible to predict the outcome of a lawsuit. The decision to litigate is usually based on a prediction of the outcome. Early on, the costs and disruption of litigation are often underestimated. It can be very hard to stop litigation once it has started, especially after large sums of money have been spent. Attitudes become more rigid and the control over settlement agenda is lost.
The cost of litigation has been rising and this can have a negative impact on the bottom line. It is not possible to identify legal risks through technology before they occur. The organisation could then take three different actions. It can first assign an internal function to litigation and risk management. It can also decide on the best way to prevent the risk of litigation by avoiding it at an early stage. Thirdly, it can have greater control over different stages of the escalation process and more influence on the final outcome.
Third-party financiers see litigation as an asset to be monetised. This is illustrated by a recent example, which was quoted in the Financial Times on 14/9/2023. In a recent New York case, a New York court awarded $16 billion in damages to two expropriated investors. Burford Capital provided litigation funding for the claim. Burford Capital reported a possible $6 billion return from this investment.
Entertainment industry is not dependent on uncertainty and faces different challenges.
The class action has expanded to include the medical, financial and energy sectors. This gives a wider range of claimants access. BBC reported on 25 May 2022 that Volkswagen would pay PS193 Million to over 90,000 drivers from England and Wales, after it settled with a High Court case regarding the installation of emission-cheating devices into its vehicles. It was reported that the VW group had already paid more than EUR30 billion in worldwide payments (PS26 billion). Copyright owners have taken class actions to challenge AI content. These developments could also apply to medical claims that arise from repeated injuries sustained in contact sports.
What has been your experience in the area of sports and media law?
As general counsel for SMPI (a joint venture between Horst dassler from the Adidas family and Patrick Nally), a Moroccan SPV, I gained my first experience. This was the first company in the world that packaged the commercial rights for major sporting events. They included perimeter advertising and exclusive product supplies to hosting venues. VIP tickets, travel, hospitality, and merchandise were also part of the package. The golden key to unlocking some of the earliest opportunities was television, which began with football. Brands such as Gillette, JVC and Coca Cola were among the clients. I was responsible for constructing and delivering these packages, based on IP and contracts.
The industry has undergone a profound change. When SMPI began working with FIFA, FIFA only had a small permanent staff and a modestly-sized office. It is now a business that generates $7,7 billion over the next four years. Townleys was built by me and my talented colleagues to fill in a legal resource gap that did not exist before. The firm evolved to meet the changing needs of its clients. Starting with IP creation, licensing and sponsorship, the firm then added departments that dealt with media rights and sponsorship, regulation, litigation and regulatory issues.
Stephen Townley
What first led you to specialize in sports and media law?
It was by accident, not design, that I stumbled into a field of law which had not been developed. In the early years, I would often describe my area of expertise as “In a land of blind people, the one-eyed king is. In 1984, I co-authored the first legal/commercial book on the sports industry in the world with my friend Edward Grayson. I am a fan of certain sports but not a’sports nut’.
What was the driving force behind your decision to join Stobbs in this new role?
Stobbs is a recognised innovator and disruptor in the space of intangible assets. They are smart, passionate, and solution-focused in their approach to delivering what clients want and require in an ever-changing world where intangibles assets have become increasingly valuable. They handle a large volume of brand issues, from legal to valuation, licensing, dispute management, and litigation if necessary. Stobbs takes a long-term view of their clients, they invest in technology development and deployment and they have a multidisciplinary team that includes lawyers and non-lawyers with expertise in the brand area. This is all very similar to my approach at Townleys, and Active Rights Management. I’ve found a like-minded person.
Do you have any career goals for the future?
I want to continue using my knowledge and share it with others to protect sport and entertainment brands from harm that can be avoided, such as financial, organisational, or reputational damage. I am currently working on a project which will examine this in more detail, and also working through Stobbs’s role as a conflict resolver. JAMS’s innovative approach and support for international neutrals like myself is particularly impressive. I would also like to continue working with WIPO and CAS and the Singapore Sports Dispute Resolution Centre, and focus on early dispute resolution.
Stephen Townley
Tel: +44 07880 505220
Stephen Townley has been fortunate enough to have a career that spans both law and business. He is a solicitor and has worked as a senior partner. He has held positions as general counsel, chairman and board member in business. Stephen has spent the last 10 years involved in high-value cross-border litigation, and reputational issues involving sport in India and Middle East. Stephen Townleys, a lawyer and ADR specialist, founded the firm Townleys back in 1984. He served as senior partner of this law firm for 18 years. The firm was recognized as the first, and for many years the largest, international sports law boutique outside of the US.